Business Context and Reporting Period
This filing is a Quarterly Report on Form 10-Q for AMERCO (parent company of U-Haul Holding Co.), covering the third fiscal quarter and the first nine months ended December 31, 2009. The company operates three primary segments: Moving and Storage (U-Haul), Property and Casualty Insurance (RepWest), and Life Insurance (Oxford). The Moving and Storage segment focuses on the rental of trucks, trailers, and self-storage spaces, while the insurance segments provide coverage for U-Haul operations and senior market life/health products.
Key Financial Metrics
| Metric | Quarter Ended Dec 31, 2009 | Nine Months Ended Dec 31, 2009 |
|---|---|---|
| Total Revenues | $463.6 million | $1,558.2 million |
| Net Earnings | $3.5 million | $70.6 million |
| Earnings Available to Common Shareholders | $0.3 million | $61.4 million |
| Diluted EPS | $0.02 | $3.17 |
| Operating Cash Flow (9 months) | $312.7 million | |
| Cash and Cash Equivalents (Dec 31, 2009) | $411.7 million | |
| Total Debt (Notes, Loans, Leases) | $1,537.9 million | |
| Total Assets | $3,969.7 million |
Material Changes vs. Prior Period
- Quarterly Performance: The company reported a significant turnaround from the prior year quarter. Net earnings were $3.5 million compared to a net loss of $25.0 million in Q3 2008. Earnings from operations improved to $28.6 million from a loss of $14.0 million.
- Revenue Drivers: Self-moving equipment rental revenues increased $9.7 million quarter-over-quarter due to growth in one-way and In-Town transactions. Life insurance premiums rose $11.5 million driven by new product sales. Conversely, net investment income decreased $2.2 million due to lower yields.
- Expense Management: Total costs and expenses decreased $21.5 million year-over-year. Depreciation expense dropped $11.6 million, partly due to a $5.3 million reduction in losses on equipment disposals. Operating expenses for Moving and Storage fell $17.8 million.
- Nine-Month Performance: Total revenues decreased slightly by $18.7 million compared to the first nine months of 2008, primarily due to a $19.4 million decline in self-moving equipment rentals (impacted by fewer one-way transactions in Q1 and foreign exchange rates). However, earnings from operations increased significantly to $183.6 million from $153.2 million, driven by a $49.1 million reduction in total costs and expenses.
Guidance, Outlook, and Risks
- Outlook: Management plans to focus on increasing transaction volume and improving pricing for self-moving equipment in Q4 2010 and fiscal 2011. Investment in the rental fleet is expected to increase in fiscal 2011. The company intends to complete current self-storage projects and increase occupancy rates.
- Liquidity: The company maintains strong liquidity with $411.7 million in cash and cash equivalents. It has access to $30.0 million under existing revolving credit facilities and an $85.0 million term loan for new equipment purchases.
- Subsequent Events: On January 28, 2010, the company notified the trustee of its intent to fully repay the $86.6 million Cargo Van/Pickup Note on February 25, 2010. A quarterly dividend of $0.53125 per share on Series A Preferred Stock was declared on February 1, 2010.
- Risks and Contingencies:
- Legal Proceedings: A shareholder derivative lawsuit (Shoen v. SAC Holdings) remains pending on appeal regarding the sale of self-storage properties to SAC Holdings.
- Environmental: The company estimates spending approximately $5.2 million through 2011 to remediate hazardous waste sites on its properties.
- Market Risk: The company is exposed to interest rate risk on variable-rate debt, mitigated by interest rate swaps. A 100 basis point increase in LIBOR would decrease future earnings by approximately $2.2 million annually. Foreign currency exposure (Canada) is approximately 6% of revenue and is not hedged.
Investor Verification Checklist
- Debt Maturities: Verify the repayment schedule for the $1,537.9 million in debt, noting the $86.6 million Cargo Van/Pickup Note repayment scheduled for February 2010.
- Related Party Transactions: Review the $197.1 million in notes receivable from SAC Holdings and the $27.5 million in commissions paid to related party dealers, as these represent significant intercompany flows.
- Investment Portfolio: Assess the $552.7 million in fixed maturity investments, noting $1.9 million classified as Level 3 (unobservable inputs) and the recognition of other-than-temporary impairments.
- Residual Value Guarantees: Confirm the exposure of $177.1 million in guaranteed residual values for rental equipment leases.
- Insurance Reserves: Monitor the adequacy of insurance reserves for Property and Casualty and Life Insurance segments, given the long-tailed nature of claims and the uncertainty in actuarial estimates.